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| 8-K - CHCO FORM 8-K, SON PRESENTATION 9 2016 - CITY HOLDING CO | form8-ksonpres92016.htm |
Sandler O’Neill + Partners, LP
Washington, DC
September 14, 2016
City Holding Company
Forward looking statements
• This presentation contains certain forward-looking statements that are included
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Such information involves risks and uncertainties that could result in the
Company's actual results differing from those projected in the forward-looking statements.
Important factors that could cause actual results to differ materially from those discussed
in such forward-looking statements include, but are not limited to, (1) the Company may
incur additional loan loss provision due to negative credit quality trends in the future that
may lead to a deterioration of asset quality; (2) the Company may incur increased charge-
offs in the future; (3) the Company could have adverse legal actions of a material nature;
(4) the Company may face competitive loss of customers; (5) the Company may be
unable to manage its expense levels; (6) the Company may have difficulty retaining key
employees; (7) changes in the interest rate environment may have results on the
Company’s operations materially different from those anticipated by the Company’s
market risk management functions; (8) changes in general economic conditions and
increased competition could adversely affect the Company’s operating results; (9)
changes in regulations and government policies affecting bank holding companies and
their subsidiaries, including changes in monetary policies, could negatively impact the
Company’s operating results; (10) the Company may experience difficulties growing loan
and deposit balances; (11) the current economic environment poses significant challenges
for us and could adversely affect our financial condition and results of operations; (12) the
effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-
Frank Act”) and the regulations promulgated and to be promulgated thereunder, which
may subject the Company and its subsidiaries to a variety of new and more stringent legal
and regulatory requirements which adversely affect their respective business; and (13) the
impact of new minimum capital thresholds established as a part of the implementation of
Basel III capital reforms; and (14) other risk factors relating to the banking industry or the
Company as detailed from time to time in the Company’s reports filed with the Securities
and Exchange Commission, including those risk factors included in the disclosures under
the heading “ITEM 1A Risk Factors” of the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2015. Forward-looking statements made herein
reflect management's expectations as of the date such statements are made. Such
information is provided to assist stockholders and potential investors in understanding
current and anticipated financial operations of the Company and is included pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The
Company undertakes no obligation to update any forward-looking statement to reflect
events or circumstances that arise after the date such statements are made. 2
• Total Assets $3.8 bil
• Branches 85
• FTE 852
• Market Cap $747 mil
• Markets: Stable, Slow growing, and less competitive
• Business Lines: Retail, Commercial, Investment Mgmt
• Asset Quality: Demonstrated strong track record
• Performance: Long record as a high performer
• Growth: Succeeding in slow-growth markets
and expanding into new markets
Date: September 6, 2016
3
Snapshot
City National Markets
1st Branch Share & 2nd Deposit Share (10%)
In Charleston MSA/Huntington MSA;
$10.5 Billion
Major Competitors: BBT, JPM, HBAN, UBSI
1st Branch Share & 31%
Deposit Share
$2.0 Billion
Major Competitors: JPM,
UBSI, BBT
2nd Branch Share & 2nd Deposit
Share (15%) in Staunton MSA
$1.4 Billion
Major Competitors: UBSH, BBT
3rd Branch Share & 6%
Deposit Share in
Winchester VA & WV
Panhandle
$4.3 Billion
Major Competitors:
BBT, UBSI, WFC
4
Market Position
Market
Population
Deposits
($mm)
Deposit
Share
Branches
Branch
Share
Branch
Rank
Charleston/Huntington/
Ashland MSA
583,000 1,098 11% 30 15% 1
Beckley/Lewisburg WV 175,000 $703 29% 16 25% 1
Winchester/Martinsburg 351,000 344 6% 12 9% 3
Valley Region 205,000 259 12% 8 14% 3
Lexington Ky Region 500,000 145 2% 3 2% 17
5
Note: Green highlight indicates market expansion as a result of acquisitions.
Data: SNL – regions modified slightly to fit City’s branch distribution
Market Demographics
Market
Population
Projected
Population
Change
2016-2021
Median
Household
Income
Projected
Change
in HHLD
Income
2016-2021
Charleston/Huntington/
Ashland MSA
583,000 (0.8%) $45,700 8.0%
Beckley 122,000 (1.4%) $40,000 6.3%
Winchester/Martinsburg 134,000 4.2% $56,000 7.5%
Staunton-Waynesboro 121,000 2.7% $51,000 7.3%
Lexington Ky Region 500,000 4.3% $52,000 8.2%
National Averages 4.4% $56,000 7.8%
6
Note: Green highlight indicates market expansion as a result of acquisitions.
Data: SNL
Deposits mostly in Legacy
Markets
Key Deposit Markets Deposits
Core West Virginia Markets – dating to 1870 72%
New Markets 28%
7
Commercial Loan Growth coming
from new markets
Key Loan Markets Percent of Commercial
Portfolio
Core West Virginia Markets – dating to 1870 52%
Virginia/Eastern Panhandle Markets –
acquired 2012/13
20%
Charlotte LPO – de novo 2006 8%
Lexington, KY – acquired 2015 11%
Columbus, OH & Pittsburgh PA 9%
8
West Virginia Economy Statistics
WV Compared to: Source
Employment 734,000
(June 2016 Projection)
741,000
(June 2011)
US Bureau of Labor
Statistics
Unemployment
Rate
6.0%
(June 2016 Projection)
7.9%
(June 2011)
US Bureau of Labor
Statistics
Coal Employment 18,159
(2014)
20,533
(2006)
West Virginia Coal
Association
Coal Production 96 mil tons
(2015)
159 mil tons
(2006)
West Virginia Coal
Association; US Energy
Information Admin
Homeownership
Rate
76% 65% (US) US Census Bureau
Average Home
Cost
$129,000
(Charleston)
$217,600 (US) Bankrate
Real Estate Taxes .49% of Mkt Value .87% of Mkt Value
(Median State)
Census Bureau
9
West Virginia Overview
• Small State – 1.8 million people
• Population lives in small cities & towns with low density
• Slow growth
• Economy historically very stable
• Strong deposit markets
• Less competitive than larger markets
• Enormous long-term potential in energy reserves and
ancillary industries – chemicals, plastics
• Seismic shift in political environment creating business
and job friendly state
– 1 Republican Senator; 1 Democratic Senator
– 3 Republican Representatives in DC
– Both houses of the State Legislature are Republican
– Right to Work Law passed
– Significant Tort Legislation achieved
10
CHCO: A perennial high-performing bank
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2009 2010 2011 2012 2013 2014 2015 YTD
2016
CHCO W/O Merger Costs $1B - $5B
Peer Data as of March 31, 2016
11
ROA
Stock Price Performance (2/1/05-7/27/15)
Slow growth markets CAN provide exceptional
performance
12
Charles Hageboeck named CEO on Feb 1, 2005
DEPOSIT FRANCHISE
One key to City’s enviable success
• Branches 85
• Average Deposits per Branch $36 MM
• Average Households per Branch 1,900
• Average Deposit Share 12.9%
• Average Household Share* 20%
* - Excludes Coastal & Lexington-Fayette Regions
13
City’s Deposit Franchise provides
access to low cost and stable funding
11%
17%
18%
10%
11%
18%
10%
4%
0.4%
1%
0.4%
Equity
Non Interest DDA
Interest DDA
Savings
MMS
CDs
Jumbos
Customer Repos
FHLB
Other
Trust Preferred
Data: December 31, 2015
14
City’s strong deposit franchise
provides NIM strength in higher rate
environments
3.00%
3.50%
4.00%
4.50%
5.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
2016
$1 to $5B Peer CHCO CHCO excluding PSLs, floors & accretion
When rates
were higher –
City’s NIM
was nearly
100bp higher
than peers
Peer Data as of March 31, 2016
March 2008
thru June
2011: NIM
supported by
Interest Rate
Floors
2013 -2015: NIM
supported by
Accretion from
acquisitions
15
CHCO’s sensitivity to interest rate risk :
Immediate Basis Point
Change in Interest
Rates
Estimated Increase or
Decrease in Net Income
between 1-12 months
+300 Bp +8.7%
+200 Bp +8.4%
+100 Bp +4.8%
-50 Bp -6.3%
Data: Internal Model as of March 31, 2016. Model assumes that
deposit mix will change as rates rise
16
Strong deposit franchise drives top
decile non-interest revenue:
31.7% 68.2%
City Holding Company
Non Interest Income
Net Interest Income
*As of December 31, 2015. Non-interest
income excludes investment
gains/(losses) & gain from sale of
insurance division.
Sample of 278 reporting publicly traded banks
and thrifts with assets between $1 and $10
billion as of December 31, 2015, excluding
investment gains/(losses)
22.8%
77.2%
Peer Group
Non Interest Income
Net Interest Income
17
Non-interest income is branch driven:
2009
2010
2011
2012
2013
2014
2015
YTD
2016
Bankcard
Revenues
$9.0
$9.9
$11.1
$12.4
$13.5
$15.1
$15.9
$8.2
Service
Charges
$36.0
$30.1
$27.0
$26.3
$27.6
$26.6
$26.3
$12.9
Insurance $5.6 $5.5 $5.9 $6.1 $5.8 $6.0 SOLD
Investment
Management
$2.3
$2.8
$3.1
$3.8
$4.0
$4.6
$5.1
$2.6
BOLI $3.3 $3.4 $3.2 $3.0 $3.4 $3.1 $3.4 $1.5
18
Efficiency Ratio
low despite a large number of small branches
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
2009 2010 2011 2012 2013 2014 2015 YTD
2016
CHCO $1B - $5B
• 2015 Efficiency Ratio for CHCO excludes Gain from Sale of Insurance Division
• Data as calculated using SNL Financial definition. Peer data as of March 31, 2016. 19
A long history of strong asset quality at
CHCO even following the 2007 recession
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
2009 2010 2011 2012 2013 2014 2015 YTD
2016
CHCO NPA/Assets Industry
Source: FDIC, All Insured Depository Institutions
Peer data as of March 31, 2016
20
Charge-off trends:
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
2009 2010 2011 2012 2013 2014 2015 YTD
2016
CHCO Net Charge-off % Industry
Source: FDIC, All Insured Depository Institutions
Peer data as of March 31, 2016
21
2015/6 Charge-offs
22
2015 Net
C/O
2015
Bp
2016 YTD
Net C/O
2016 Bp
Annual Rate
Residential
Mortgages
$0.945 MM 7 bp $0.652 MM 9 bp
Home Equity $0.312 MM 21 bp $0.175 MM 24 bp
Commercial &
Industrial
$4.977MM 300 bp $0.041 MM <1 bp
Commercial RE $0.214 MM 2 bp $0.667 MM 12 bp
Consumer/OD $0.646 MM 161 bp $0.238 MM 128 bp
Total $7.094 MM 25 bp $1.773 MM 12 bp
Net Charge-offs in 2015 for C&I loans were primarily related to a single coal-
mining equipment customer. City’s total exposure to the Mining Sector at
year-end was less than $10 million.
23
West Virginia Floods – June 2016
• Absolutely Devastating within several WV communities but
within highly localized areas
• 26 deaths
• Up to 1200 homes destroyed or significantly damaged
• Flooding overlapped City’s franchise most specifically in
Greenbrier County
• Precise impact on CHCO still unknown - BUT -
• Within zip codes where some flooding occurred – City has
approx 900 loans – mostly residential (averaging $43,000)
About 10% of these homes are in a flood zone meaning that
most of these homes are not in flood zones, and most homes
in these zip codes did NOT flood. Some homes that were NOT
in flood zones DID flood however.
• As of July 28, 2016, City is aware of 1 large commercial real
estate loan where the collateral was destroyed but the
property was insured for flood damage and one small
commercial loss of up to $100,000. City is also aware of five
small residential loans where the collateral was destroyed and
not insured– with identified losses of about $200,000 so far.
Most losses were in Rainelle, West Virginia.
24
West Virginia Floods – June 2016
Growth:
CHCO has achieved, and will continue to achieve
“reasonable growth” despite the slow growth nature of
our markets
• Commercial
• Retail Lending
• Trust & Investment Management
• Deposits
25
Commercial loan growth:
Success achieved due to community bank orientation,
strong team, strong underwriting, and strong local
economies
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2016
Y
T
D
(
A
R
)
Growth percentages exclude acquisitions; Loan Decreases in 2014
reflect reduction in acquired problem loans
26
Retail loan growth
Adjustable Rate Mortgages, Home Equity Loans,
Installment credit
$1,200
$1,250
$1,300
$1,350
$1,400
$1,450
$1,500
$1,550
$1,600
$1,650
$1,700
Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16
Loans
$M
M
Residential Real Estate Home Equity Consumer
27
Trust AUM & Revenues: Strong growth
AUM CAGR 11.7% and Revenue CAGR 10.2% (Dec 31,
2006-Dec 31, 2015)
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$0
$200
$400
$600
$800
$1,000
R
ev
e
n
u
e
s
A
UM $M
M
AUM (MM$) Revenues
28
Deposit growth opportunity:
CHCO has many small deposit transaction relationships; Peers
tend to have larger commercial & public deposits; So liquidity is
readily available as needed.
Branches Deposits Deposits/Branch
CHCO 85 $ 3.1 B $36 million
BBT 70 $ 5.3 B $76 million
UBSI 31 $ 1.9 B $61 million
JPM 34 $ 2.6 B $76 million
HBAN 14 $ 1.0 B $72 million
Includes branches within 5 miles of City branch
Source: SNL
29
Acquisition philosophy:
• Opportunities have increased
• Actively looking
• Size: Generally $100MM to $1B
• Historically less acquisitive than peers
because City’s strategy is driven by creating
shareholder value – not merely size driven
• Acquisitions must truly be strategic or
meaningfully accretive
• Recent acquisitions have all been
“commercially driven” and in higher growth
areas
30
Acquisitions in Growth Markets
31
Community Bank
• Closed January 10, 2013
• 9 branches in Virginia
• Community was a poorly performing bank with
significant asset quality problems but good
retail distribution and some great talent.
• City was a significant shareholder of
Community.
• Projected Population growth of 3.1% over 5
years in Staunton, VA region
• City’s strategy has been to resolve asset quality
problems, close underperforming banks, exit
unprofitable indirect auto lending business, and
provide liquidity to fund retail loans
32
Virginia Savings Bank
• Closed May 31, 2012
• 5 branches in Winchester, VA market
• VSB was an underperforming small bank with
little market visibility but some great talent
• Projected Population growth of 5.0% over 5 yrs
• City’s strategy has been increased visibility,
significant improvements in retail banking
products & facilities, and increased liquidity to
provide for retail lending
33
Facility Enhancements
Woodstock, Virginia
BEFORE
AFTER
34
Facility Enhancements
Winchester, Virginia
BEFORE
AFTER
35
Branches from American Founders Bank
• Closed November 6, 2015
• 3 branches in Lexington, KY
– $119 million in loans (chosen by City)
– $145 million in deposits
– 3,100 households
– Strong talent
• Projected Population growth of 4.3% over 5 years in
Lexington-Fayette, KY region, with exceptional
demographics in terms of income, education and age
distribution
• City’s strategy is to provide additional liquidity for retail
lending and to allow the commercial team to continue
with their success while providing access to capital to
make larger loans
36
Financial Impact of Acquisitions:
VSB – Before
VSB – After
Community
– Before
Community -
After
Branches 5 5 11 9
FTE 48 30 (-38%) 153 58 (-62%)
Loans^ $73 MM $87 MM $371 MM $295 MM *
Deposits $120 MM $152 MM $385 MM $303 MM **
Expenses
$4.7 MM
(2011)
$2.4 MM (-49%)
(2015)
$14.7 MM
(2012)
$4.5 MM (-69%)
(2015)
Retail Trans.
Hhlds/branch
804
1,116
1,013
1,196
^ Loans are balances after the mark-to-market
* Ran off all indirect auto loans and ran off problem commercial credits
** Closed 2 branches and ran-off Brokered Deposits
37
Note: Cost Savings do not include any “add-backs” in operations center
Acquisition territory:
38
Tangible Common Equity:
strong following acquisitions in 2012, 2013 & 2015
6.00%
7.00%
8.00%
9.00%
10.00%
11.00%
2008 2009 2010 2011 2012 2013 2014 2015 Jun
2016
39
Share Count:
strong capital and high profitability allow aggressive share
repurchases
13,000,000
13,500,000
14,000,000
14,500,000
15,000,000
15,500,000
16,000,000
16,500,000
17,000,000
17,500,000
18,000,000
Average Shares Outstanding
40
Cash Dividends/Share Declared &
Dividend Payout Ratio
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
D
ivide
n
d
P
ay
ou
t
R
at
io
Ca
sh
D
ivide
n
d
s/
Sh
ar
e
D
e
cl
ar
e
d
Dividends/Share Dividend Payout Ratio
41
Dividend Increased to $1.72 (annual rate) in March 2016
Growth per share (12/31/10 –
12/31/15):
• Loans per share: 8.8% CAGR
• Deposits per share: 6.8% CAGR
• Non-interest inc per share*: 0.8% CAGR
• Expenses per share**: 3.7% CAGR
Implication: While CHCO operates in relatively
low growth markets, high profitability allows
share repurchases, which have driven core
earnings despite the economic environment of
the last several years
*-Excludes gain from Sale of Insurance Division
**-Excludes one-time merger expenses 42
Industry Challenges in 2016:
• Economic Activity & Loan Growth
• Mortgage Banking Slowdown
• Branch Fees are stagnant
• Loan Competition – Terms & Price
• Regulatory Compliance
• Future Regulatory Agenda
43
Challenges specific to CHCO:
• Downturn in Mining?
•City’s direct exposure to mining extremely small
• Downturn in Natural Gas?
• While we anticipate challenges for aggressive lenders in
markets characterized with significant natural gas drilling –
City’s franchise area isn’t dependent on natural gas drilling
• Floods ?
• Floods in June 2016 hit certain communities where City is
the leading bank very hard; However our lending exposure
appears to not have significant risk
CHCO overcomes challenges thru:
• Excellent distribution network
• Exceptional Customer Depth driving strong non-interest income
• Markets characterized by disciplined competition - and even
perhaps “receding” competition
• Discipline in managing expenses
• Strong liquidity from a strong depository base
• Strong capital levels coupled with capital-generating capacity
• Well regarded Common stock valued in acquisitions
• Limited exposure to coal-based businesses or natural gas drilling
• Increasing exposure to higher growth markets
• Sufficient size to easily address regulatory challenges confronting
smaller banks
• Strong and stable management team
44
CHCO represents good value and
stability
• Pricing Metrics*:
• Price to Book: 174%
• Price to Tangible Book: 214%
• Price to 2016 Projected Earnings** 15.4x
• Dividend Yield 3.5%
• Div Payout Ratio** 53%
• Tangible Capital/Tangible Assets*** 9.38%
• Institutional Ownership 62%
• Average Daily Volume $3.2 mil
* Based on Price of $49.82 (9/6/16)
** Based on analyst estimate of $3.24 for 2016 (average of 4)
*** June 30, 2016
45
Questions?
46